PayPal is nice for web sites, but better for mobile

By Amy DustoAssociate Editor

Online alternative payments may have passed their peak, a Forrester report says.

Sucharita Mulpuru

Consumers will use PayPal, Google Checkout and other payment methods other than plastic for 23% of e-commerce transactions in 2016, up from 20% today, according to Forrester Research Inc. Its report, “U.S. Alternative Payments Forecast, 2011 to 2016,” says non-card payments will account for $110 billion worth of e-commerce transactions in 2016, up from $64 billion this year. Forrester estimates that consumers will spend $327 billion with online retailers in 2016, up from $226 billion this year.

The report offered no breakdown of the market share commanded by various alternative payment systems, which enable consumers to pay for online purchases without entering their credit or debit card numbers. But the report says PayPal is the most popular alternative payment system, and that a third of PayPal transactions take place on eBay Inc., the online marketplace that owns PayPal.

The report also says that much of the growth for alternative payments will come through purchases made on mobile devices. For online retailers, that means perhaps PayPal is not as much a web site priority as a mobile one. “It’s low-hanging fruit—it’s nice to have, but it’s not a must have,” Sucharita Mulpuru, Forrester analyst and lead author of the study, says about PayPal.

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The report says it typically takes retailers considerable time—usually several months—and developer talent to implement an alternative payment method, and the result is usually a boost in sales of no more than 10%. That modest return, Mulpuru says, means e-retailers might want to focus on higher priorities on their technology to-do lists. With growing mobile commerce though, adding alternative payment options for smartphones and tablets may prove more worthwhile for retailers than adding them to web sites.

Mulpuru recommends PayPal Mobile Express Checkout as a way to bypass form-filling during checkout on a mobile device. “The conversion is much lower on phones [than online], but we do know with PayPal Express Checkout the conversion is higher,” she says.

Given that many consumers have PayPal accounts—according to eBay—the convenience PayPal offers when paying on a smartphone will lead them to use it and boost conversion, Mulpuru says. “Even if it adds only 10%,” she says, “that’s still significant.”